Wall Street's five-month-long rally suffered a severe setback in September owing to extreme volatility. U.S. markets are likely to continue fluctuating in October too for several economic and political reasons, which already made several market participants all the more jittery.
However, a closer look into the global equity investment arena clearly reveals that the U.S. stock markets are the best-performing investment landscape in the coronavirus-stricken 2020.
Globally U.S. Stock Markets Are the Best
The U.S. stock markets are the best destination for investors. Between the post-recession era and the outbreak of the novel coronavirus, overall returns of U.S. stocks were nearly four times higher than the rest of the world. After successfully recovering from the Great Recession, Wall Street also recovered overwhelmingly from the trade-related assault of 2018.
Wall Street is poised to keep the flag high amid coronavirus-led devastations too. In the past six months, major European indexes such as DAX of Germany, FTSE 100 of the U.K., CAC 40 of France and the pan-European STOXX 600 gained 27.3%, 6.5%, 12.1% and 14.1%, respectively.
Major Asia-Pacific indexes like NIKKEI 225 of Japan, Shanghai Composite of China, Hang Seng of Hong Kong, KOSPI of South Korea and ASX of Australia gained 23.7%, 14.1%, 1%, 29.6% and 13.5%, respectively, in the same time frame.
In the past six months, major U.S. stock indexes like the Dow, the S&P 500 and the Nasdaq Composite have rallied 24.1%, 28% and 43.2%, respectively. Overall, Wall Street's performance is much better than the overall European and Asia-Pacific regions.
Excluding last month’s severe volatility — which originated from U.S. specific factors (like the resurgence of coroanvirus, the absence of new fiscal stimulus and the upcoming presidential election), performance of the U.S. stock markets could have been much better.
Solid Fundamentals of the U.S. Economy
The gigantic size of the U.S. economy has given it a clear upper hand over European and emerging markets. Furthermore, geopolitical conflicts are not going to harm the United States as much as the rest of the world. Technological innovation has always been a pillar of U.S. economic strength.
The U.S. government and the Fed have already injected around $7 trillion of stimulus to sustain the economy during the pandemic. A Congressional settlement for the second round of coronavirus-aid package will immediately boost investors' confidence in risky assets like equities. Notably, the latest Conference Board data revealed that Americans expressed their highest level of confidence in the economy in September since March.
Moreover, the Fed reiterated that the benchmark interest rate will stay zero or near zero at least up to 2023. The central bank will also pursue its existing $120 billion monthly purchase of assets in the form of U.S. Treasury and mortgage bonds until the economy returns to normalcy or the pre-pandemic level. The Fed's ultra-dovish monetary stance is a long-term positive for the stock market.
A low-interest rate will reduce the cost of capital for businesses and consumers have a lesser propensity to save due to a low deposit rate. Therefore, higher spending by businesses and consumers is likely to boost the overall economy and raise stock prices. Moreover, a low discount rate will increase the net present value of the investment in equities.
How to Pick the Right Stocks
At this stage, it will be prudent to invest in large-cap (market capital > $50 billion) stocks with a favorable Zacks Rank. These companies have well-established businesses, solid liquidity and brand names. Also, we have select stocks with strong short-term and long-term (3-5 year) growth potential that have witnessed robust earnings estimate revisions within the last 60 days. These stocks have rallied more than 50% to more than 300% in the past six months.
Major stocks that fall in this category include Zoom Video Communications Inc. (
ZM Quick Quote ZM - Free Report) , salesforce.com inc. ( CRM Quick Quote CRM - Free Report) , Thermo Fisher Scientific Inc. ( TMO Quick Quote TMO - Free Report) , Target Corp. ( TGT Quick Quote TGT - Free Report) , FedEx Corp. ( FDX Quick Quote FDX - Free Report) , NIKE Inc. ( NKE Quick Quote NKE - Free Report) , Deere & Co. ( DE Quick Quote DE - Free Report) and Square Inc. ( SQ Quick Quote SQ - Free Report) . Each of our picks carries a Zacks Rank #1 (Strong Buy). You can see . the complete list of today’s Zacks #1 Rank stocks here
The chart below shows the price performance of above-mentioned eight stocks in the past six months.
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